Fix Your Own Credit

The Basics

There are three companies in America that track what companies have lent you money, how often you've paid them late, where you've lived, and who has asked them to see your credit record. These three companies are called credit bureaus, credit reporting agencies (CRA), or just credit agencies. The three main agencies in America are Equifax, Experian, and TransUnion. They are called the "Big Three". Whenever you apply for a loan, the person is checking with at least one of these companies to see whether or not they should lend you money. You want your record with these three companies to be as good as possible.

The Basic Strategy

There are two stratgies to raise your FICO score. The basic strategy is simple; have reasonable amounts of debt, and always pay bills on time.

• Every on-time payment boosts your score. Always pay on time. If you cannot pay on time, call them, tell them it will be late, and tell them when to expect the payment; being friendly on the phone can save you a black mark on your credit.
• Using more than 1/3rd of your available credit lowers your score; if you have a credit card with a $1000 maximum balance, running a balance over $333 will negatively effect your credit. Having a car loan more than 2/3rds paid off will boost your credit, as you're again using less than 1/3rd of your maximum credit on an account.
• If you have an old credit card that you never use, don't automatically close it. Having older accounts boosts your credit, by giving you a longer credit history. That said, having too many open lines of credit will also adversely affect this number, and the formula the credit agencies use is not available to you and me.
• Applying for new lines of credit will temporarily lower your credit score. This will hurt your ability to apply to multiple banks for the same loan.

You don't need to be paying on time before moving on, but it's certainly the biggest step towards a good credit score.

The Fair Credit Reporting Act

The credit agencies are bound by the Fair Credit Reporting Act (FCRA). This is a set of laws, enacted by Congress, that protects the consumer (you) from the big credit agencies. It is hugely in favor of the consumer. It is something to write Congress a *big* thank-you letter for. It is also a *long* document, so here's a summary, as I understand it, cobbled together from reading it and looking at online summaries.

The FCRA gives you excellent rights:

• You have the right to request copies of your credit report, to see what is having an effect on your credit.
• You have the right to one free credit report every year from the Big 3. More on this below.
• If negative information is removed due to a dispute, it may not be reinserted without notifying you in writing.
• Negative information may only stay on your report for seven years after it is reported, with two exceptions; bankruptcies stay around for ten years, and tax debt stays for seven years after they are paid. There was a *huge* change in the FCRA recently farther in favor of the consumer; the seven year timer starts when you missed the first payment, not later. Again, if you never paid after January 2005, it went to collections in June 2005, and you paid it off in December 2007, the seven-year timer starts in January 2005.
• You have the right to ask the credit agencies to investigate any item on your credit report. This is called a dispute.
• The credit agency and creditor must perform this investigation at their own cost.
• If the credit agency cannot verify the debt is correct after a reasonable amount of time, they must remove the debt from your record. Thirty days is considered the reasonable amount of time, unless they notify you and indicate it will take longer. It may require a lawyer to get them to remove items that take longer than thirty days to process.
• The only item that counts as proof of a debt is a copy of the original document that opened the debt; in the case of credit cards, that's the original paper you signed when you applied for the card.
• After an investigation, the credit reporting agency must provide you with a free copy of your credit report.

So that's important part of FCRA as I understand it.

The Ground Rules of Dealing with Creditors and Credit Agencies

Let's set some ground rules on how to deal with the credit agencies and creditors. These are important. Read them twice.

• Do not lie. It's enough to say "I don't have documentation of this, and would like you to investigate it."
• Do not ever admit that any negative information on your report is correct. Saying "this is my account, but I want you to investigate whether the dates are correct" confirms that the account is actually yours. Don't make their job eaiser. Submitting a 100-word explanation of a debt doesn't help your credit score, but *does* confirm that it's certainly your debt. Don't make their job easier.
• Do not do something the credit agency will dislike you for. Do not look like you're working with a credit repair agency, following a credit repair website, or reading a credit repair book. If they stamp "makes frivolous requests" on your file, you may be screwed. In that case, it's probably time to get a laywer to look at your file.
• Be friendly at all times. The person you're talking to via mail, or the person you're talking to over the phone? They've never personally done anything against you, have nothing against you, and thirty seconds of their goodwill can make a large positive impact in your life. Be nice.

The Cleaning Strategy

Now, let's look at how we use this to clean up your credit report.

1. Order your free credit reports, one from each of the Big 3. The Federal Trade Commission (FTC) tells us how to do this. You'll need to give them some identifying information, including your social security number. You can get the reports free in one of three ways:
   • https://www.annualcreditreport.com. There are several other sites that claim to offer the same service; some of them are trying to steal your social security number. This is the site linked to by the FTC, and is not a scam. Make sure you print all three reports. You don't need to buy *anything* extra; if they ask you to sign up for a service, or offer you an additional service, decline.
   • Call the FTC. 1-877-322-8228 is the number for this service.
   • Complete this form (PDF) and mail it to:
     Annual Credit Report Request Service
     P.O. Box 105281
     Atlanta, GA 30348-5281
2. Once you have a copy of all three reports, you can start to clean them up, yourself. Get a highlighter. Find everything that's incorrect. Highlight them. See if there are any accounts you don't recognize. Highlight them. See if there are any negative accounts more than seven years old. Find every negative remark, and highlight away. If you've ever submitted a "100 word statement" explaining a negative mark, ask to have that removed in a first round, as all that does is serve as confirmation the negative account is correct!
3. Once you've highlighted all of your negative and incorrect history, you're going to write one letter to each credit agency asking them to investigate each of these negative items.
   • So, as the rights from the FCRA said above, the credit agencies have 30 days to verify any information you challenge, within reason. Do not use the online dispute features from the credit agencies, as this will speed up their process. Do not use a form provided by the credit agency, as this will speed up their process. They may ask for more time to investigate, or ask for more information, both of which restart the 30 day timer.
   • You're going to give them your name, address, and Social Security number. Tell them you have a recent report from their agency, but do not give them reference numbers to that report. Again, if it takes longer than 30 days, you're the winner here.
   • Ask them to investigate the things you highlighted earlier, listing them one at a time, with a brief explanation of why you want them to investigate each item. Again, be nice, it's to your benefit!
   • Do not use a letterhead or form letter. Write it yourself. It doesn't have to be a work of Shakespeare; just getting the facts on paper is fine. Using a letterhead or form letter, or even copying a template too closely may make it look like you're working with a credit cleaning agency, which will get "Frivolous" stamped on your file. Again, this is a bad outcome. You want them to be sympathetic to you.
   • Be *very* nice to them. They're only doing their jobs, and being nice to them will probably make this easier for you, as well.
   • Claiming an account "isn't yours" isn't honest if you know it is. Don't do that. Claiming you dont have documentation of the debt, and would like them to find proof for you? This is honest, and accomplishes the same thing. It gets them to start the investigation. There's no need to be dishonest. You're within your rights to request investigation of negative items on your report.
   • So, write three letters, once to each of the Big 3. Open up Microsoft Word, and take a quick look at these three templates, complete with addresses. Do *not* copy from the templates, retype yours from scratch.
     • Equifax
     • Experian
     • Transunion
   • Again, do *not* copy those examples; write yours from scratch.
4. Sign them, make copies for yourself, send them, and make a note of what day you sent them in. Then wait until you receive a response, or 30 days, whichever comes first. If you can find the correct fax dispute number for the agencies, it can't hurt to fax the dispute to them on a very busy day; the week of Thanksgiving comes to mind.

After a short intermission

• If 30 days pass with no repsonse, they may have not gotten it, or they may have 'lost' it in the office. In either case, wait at least another week, and send a second copy of the original letter via Certified Mail, so that there's a record of them getting it. Then start the timer again. If they ignore a letter via certified mail, resend *another* certified mail, and edit that one to reference the previous ignored letters. Eventually, you should get a response.

  • If you never receive a response to multiple certified letters, and you have the address right, you should probably go to court. You have proof they're not looking at your case, so find an attorney who will work on contingency. This seems a winning situation for you. Alternatively, contact the Attorney General in the state where the credit agency is located, and work through their office to have your negative credit cleared.

• Assuming you've received their letter back, open it up and take a look. They may have agreed to everything you asked for. They may have accidentally deleted an unrelated account, simply by quickly reviewing your file. This is not uncommon. Open a beer and celebrate.

  • In the case that they say, "yes, this is your account, we're leaving it in your file", well, you're not finished yet. The law is still well on your side. Remember what I said about the FCRA? The original creditor is still required to provide written proof that the account is actually yours, which means a copy of the piece of paper you signed to open the debt. Most non-government organizations don't keep these around very long, but if they can't provide this, the debt is *not* legally yours, and should not be on your credit report.

  • Look at the credit report, find the phone number of the creditor (the credit card company, for example), and call them. Make the call on a phone line for which you get the bill, or send it as a fax and keep the fax receipt.

    1. Explain that there's an account on your credit report, and that you're not sure if it's yours or not. Give them enough information to figure out what the account in question is, and ask them if they could send you proof of the debt. Even if they claim they're going to mail you proof, good odds are you'll receive a letter apologizing that they've lost the original document.
    2. If they send you a letter apologizing that they do not have proof, forward the letter to the credit agency reporting the debt. Here's an example letter. Here's a second example.
    3. If they don't send anything back within a week or two, then ask the credit agency to remove the debt from your record. Attach a copy of your phone bill and/or fax receipt as proof you have contacted the creditor directly.
    4. If they send proof it's your account, you can apparently continue to repeat the process from the beginning after thirty days. I would recommend at least a ninety day wait, to avoid becoming a "frivolous request" file. You could also call the creditor, and offer to settle the debt.

  • Government creditors will usually have proof. Student loans, taxes, court judgements, child support, and bankruptcies leave a record, so you're hoping to exhaust the 30 day limit or hoping for the Monopoly card "Bank Error in Your Favor" to come up. Private creditors often don't have proof past the first year or two, especially if they were acquired by another creditor.

• If you offer to settle a debt, or offer to pay a creditor a portion of the sum you owe/owed them, get everything in writing before paying a dime. You also should negotiate that they wil remove all negative related marks with all three credit agencies, and that they should report you as "current, paid off, and always on-time". This is a common point for negotiation. They will agree to it. Otherwise, they don't get any money, and it doesn't cost them anything to report you positively.

• If everything fails, you can start again from the beginning. You must wait at least 30 days to do so, and should probably wait 90 days before resubmitting, to avoid your requests being labelled frivolous by the credit agencies. The credit agency may send you a letter complaining that they've already investigated the claim. Send back a friendly letter telling them the FCRA requires them to do the investigation again. You may be within your rights to sue them if they refuse to reinvestigate a claim, but again, that's the realm of lawyers, and I'm no lawyer. Again, once you have the "frivolous" tag on your account, a lawyer may not be as much help to you as they would have been originally.

The Summary

Again, a quick summary of the strategy.

• Request your free credit reports from the Big Three credit agencies.
• In writing, ask for them to investigate all of your negative history, and give individual reasons. Never lie. "I don't have record of this account", or "I do not believe this to be my account", anything, really, that gets the investigation rolling. Be friendly.
• Reference your credit report, but don't give them the reference number/ID number/report number of the report. You want this to go slowly. If the credit agency ever takes longer than 30 days to respond, they should pull the negative items, whether they're yours or not.
• Some of the negative items will probably clear. Some won't. For things that didn't clear, contact the original creditor and ask for written proof of the debt. It's probably easiest to call, instead of mail, but do it on a phone where you receive the bill. Be very friendly, this is a normal request, they'll be glad to try and find proof.
• The only thing that counts as written proof is the original document you signed to open the account. If they can't provide a photocopy of that, it isn't legally your debt, and you may request it be removed from your credit record.
• If the creditor can't or won't give you written proof of a debt within a week or two, mail the credit agency and let them know. They'll pull the negative item off your record. You can use your phone bill as proof you called the creditor.
• If at first you don't succeed... start from the beginning. Some folks have apparently had items finally drop after the second, third, or fourth set of requests. You must wait 30 days between repeat requests, and probably should wait at least 90 days between repeat requests, to avoid your requests being labelled "frivolous".

The Most Important Notes

And again, the most important notes. Like I said, read this twice!

• Do not lie.
• Do not ever admit that any negative information on your report is correct.
• Do not do something the credit agency will dislike you for.
• Be friendly at all times.

Finally...

So, that's the current state of the law, near as I could find out from Google. That's the strategy that worked for me, and helped me clear my credit. Done right, it should either solve the problem, or be a good entry step to getting documentation together before consulting a lawyer. I take no liability of any kind should you follow this advice.

If you have any comments, corrections, or questions, please email me, I'd really like to know what people think of this site!

If you do follow the advice, drop me an email and let me know how it goes? I'm going to try keeping a blog to track how this works for other folks.